The changes to the Consumption Tax Law contained in the bill are outlined below. But, the details of some aspects of the changes will not be released until a later date, through cabinet orders and ministerial ordinances.
Two-step tax rate increase
Under the amendments, the consumption tax rate will be increased from the current 5 percent rate to 8 percent on an interim basis, with effect from 1 April 2014, and then to 10 percent with effect from 1 October 2015.
Each new consumption tax rate will be applied to the transfer of assets, the provision of services in Japan, and the importation of taxable goods on or after the respective effective dates. For certain types of asset transfers or service transactions, transition rules have been provided.
There is also a possibility that the proposed tax rate increases may be suspended following comprehensive consideration of the economic environment prior to implementation.
Revision of tax-exempt status for newly established companies
A newly established company having paid-in capital of less than JPY10 million is generally not treated as a consumption taxpayer for fiscal years with no base period1, except in certain cases (e.g. where the company itself chooses taxpayer status).
With the amendment, a newly established company will be treated as a taxpayer in fiscal years with no base period, regardless of the amount of its paid-in capital, if:
- A newly established company is controlled by a person (including individuals and companies)2 as of the first day of the fiscal year with no base period.
- The amount of consumption taxable sales of the person controlling the newly established company, or the amount of taxable sales of a company related to such person3, exceeds JPY500 million during the theoretical base period of the fiscal year of the newly established company.
This provision will be applicable to companies established on or after 1 April 2014.
Items to be deliberated
The new law specified certain items to be discussed further with regard to the overall tax system, including some issues relating to consumption tax:
- measures to mitigate the impact on low-income earners caused by an increase in the consumption tax rate
- measures to allow smaller businesses to smoothly and properly pass on the higher consumption tax on product prices
- price labeling system (tax-exclusive price/tax-inclusive price)
- consumption tax burden for medical institutions
- measures to address potential problems with respect to the purchase of homes.